Credit Card Offers Evaporating
Economists have warned for a while now that the credit card industry would be the next to fold after the mortgage industry collapsed last year.
The general logic being that without the ability to tap home equity, loads of borrowers won’t actually be able to pay for the expensive items they charge up on their credit cards.
Luckily, it appears as if credit card issuers are heeding the warnings, as evidenced by recent moves by all the major players to mitigate risk.
Aside from cutting credit lines and denying more applications, credit card providers are also raising APRs and offering less favorable terms, despite the fact that interest rates have fallen precipitously.
Gone are the extended 0% APR introductory periods, which were as long as 16 months at one point. Nowadays, you’ll typically get 0% APR for six months tops.
One area getting hit particularly bad is the affiliate space. Affiliates pitch credit cards and earn a tidy profit, but lately card issuers have pulled many of the offers and reduced payouts.
Similar to the mortgage industry, where brokers resell loan programs via wholesale lending channels, credit card affiliates promote credit card offers and get a commission when an application is approved.
But the wholesale lending space proved to be problematic for many mortgage lenders, leading to default rates that were substantially higher than those originated through traditional retail channels.
That led to huge pullback in such lending, and it appears as if credit card issuers are taking note, choosing to originate offers in-house instead.
It’ll be interesting to see just how conservative card issuers become in coming months, and what other approaches they take to offset risk, especially given the fact that they’re being pressured to boost consumer lending as part of their agreement to use government funds.
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(photo: flydime)
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Posted Under: Credit News